Gold only ‘temporarily wounded’

Gold’s sharp sell-off of nearly $25 at the open of U.S. trading on Wednesday prompted many theories, including some blaming a “fat finger” erroneous trade.

Once the dust settled, traders pointed to stop-loss orders being triggered by computer-driven trading programs, funds taking end-of-month profits on their long positions, and options-related selling driven by contract expirations.

Regardless of the reasons behind the pullback, it makes Friday’s technical breakout for gold a distant memory.

“This is another test of downside buying interest but it also highlights the commitment issues that reside when the market attempts to climb higher,” said Edel Tully, a strategist with UBS in London.

In trying to determine a floor for gold prices, he looked back to October as a primary guide.

Mr. Tully is confident that confirmation of central bank buying in October prevented the market from falling substantially below $1,700. He expects this underlying buying interest will come into play once again.

“All in all, gold is temporarily wounded, nothing more, nothing less,” the strategist said. “Despite all the selling [on Wednesday] which was largely concentrated on the floor, we observed very little client appetite to follow the trend. That is a positive indicator to remember.”